CAS EC 101 Lecture Notes - Lecture 10: Opportunity Cost, Fixed Cost, Marginal Cost

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3 Nov 2016

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A firm can sell as much as it wants at market price and no excess supply so it only makes sense; why would they sell for less. Competition and supply curves: supply curve answers, how much would you want to sell at each price? , individual supply curves exist only for firms that are price takers, including perfectly competitive markets. Marginal cost: the marginal cost (mc) of unit q is the opportunity cost of unit q with the production of the preceding q-1 units taken into account. The number of units already produced affects the cost of producing the next unit. So as q changes, mc may change as well, even when all units are identical. We can think of mc as the additional cost required to produce q units instead of q-1 units: as more units are produced, mc.

Related Questions

1. A firm that is a pure competitor has P > ATC and P > MC on the output (Q) it is presently producing and selling. Is this firm maximizing its profits? If not, which direction should it change its output if it wants to maximize its total profit?

2. Is a pure competitor in short-run or long-run equilibrium if it has P=MC=ATC? Explain.

3. There is free entry in the model of pure competition. Assuming that P > ATC for a vast number of firms producing a standardized product for a given market, what will happen to market supply as the consequence? What will happen to the market price (P) of the product these firms are producing?

4. Firms in the pure competition have horizontal demand functions. (The market determines product price, so firms in this competitive market are price takers.) Do firms in this model have to lower prices if they want to sell more output? Why or why not?

copperporcupine291

Which of the following is not necessarily a characteristic of perfect competition? (Points: 1)

low prices
a large number of buyers and sellers
a homogeneous product
perfect information

2. In the short run, a perfectly competitive ball bearing manufacturer will continue to produce at a loss if (Points :1)
it is covering all of its variable cost plus part of its fixed cost

it is covering all of its fixed cost
variable cost is less than the fixed cost
fixed cost is zero

3. The golden rule of profit maximization states that any firm maximizes profit by producing where (Points :
marginal revenue equals marginal cost
demand is unit elastic, and total revenue is the greatest
price equals marginal revenue
price equals marginal cost

4. Which of the characteristics of perfect competition assures that economic profit will be zero in the long run? (Points: 1)
There are easy entry and exit in the market.
Each firm is a price taker.
Each firm has access to perfect information.
Each firm is small relative to the market.

5. A constant-cost industry is distinguished by the fact that(Points: 1)
firms' short-run average total costs are horizontal
firms' short-run marginal cost curves are horizontal
the long-run industry supply curve is perfectly elastic
the short-run industry supply curve is perfectly elastic

6. Commodity products are (Points: 1)
pasteurized
bland
perceived by consumers to be identical
made by one manufacturer

7. In a perfectly competitive industry we are likely to find(Points: 1)
firms producing a wide variety of products
barriers to entry
no profit possible in the short run
firms that do not advertise

8. Perfectly competitive firms are price takers because (Points :1)
all small firms must take the price set by the largest firm in the market
firms take the price that government determines is a "fair" price
each firm is small and goods are perfect substitutes for one another
free entry and exit in the short run creates a constant market price in the long run

9. In perfect competition, if one firm raises its price, (Points :1)
others will follow
that firm will increase its revenues
that firm will lose revenues because other firms will not follow
all consumers will be adversely affected

10. Suppose, at its present rate of output, a perfectly competitive firm's marginal revenue exceeds both its marginal cost and its average variable cost. To maximize profit, the firm should (Points: 1)
lower the price
raise the price
increase output
reduce output

tanpig844

Firm z, operating in a perfectly competitive market, can sell as much or as little as it wants of a good at a price of $16 per unit. Its cost function is C = 50 + 4Q +2Q^2. The associated marginal cost is MC = 4 +4Q, and the point of a minimum average cost is Qmin = 5.

a. Determine the firm's profit-maximizing level of output. Compute its profit.

b. The industry demand curve is Q = 200 -5P. What is the total market demand at the current $16 price? If all firms in the industry have cost structures identical to that of firm Z, how many firms will supply the market?

c. The outcomes in parts a and b cannot persist in the long run. Explain why. Find the market's price, total output, number of firms, and output per firm in the long run.

d. Comparing the short-run and long-run results explain the changes in the price and in the number of firms.

viridianhippopotamus258

CAS EC 101 Lecture Notes - Lecture 10: Opportunity Cost, Fixed Cost, Marginal Cost

CAS EC 101 Full Course Notes

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